Key Highlights

• U.S. President Trump says that Ukraine President Zelensky is “ready to give up Crimea.” Trump also rebuked Russian President Putin as efforts to achieve a ceasefire intensify.

• Chinese officials reiterated their  vow to support employment and the economy, saying that the government will fully prepare contingency plans and are fully confident to reach 5% GDP target this year.

• Reports point to a sharp decline in container bookings to the U.S., driving up inflation fears from supply shocks, as even with a bilateral trade deal it will take time for inventories to rebuild.

Chart of the Day

EXHIBIT #1: INR AND GBP HAVE LARGEST REBALANCING RISKS INTO MONTH-END

^{Source: BNY}

April was one of the most volatile months in recent memory due to the international trade uncertainty from U.S. tariffs. Within the FX market, the core narrative was dollar weakness, not just on a tactical basis but also potential structural allocations away from the dollar due to a revisiting of haven status. Even before looking at the rebalancing situation due to asset returns, one of the core decisions to make for FX managers is whether to reduce some of the hedges imposed upon the dollar through the first three weeks of April. As the dollar has ended the month materially weaker, some recovery flow is needed whereas the supposed “alternatives” in favor during that period will face selling pressure. Over the past two weeks flows into commodity bloc names and low-yielding, savings-heavy currencies all benefited. The strongest signals for rebalancing can be attributed to idiosyncratic factors: INR faces selling flow due to index-inclusion driven bond market performance; GBP requires recovery flow due to weakness across domestic assets.

What's Changed?

Risk sentiment is broadly positive continuing last week’s momentum in equities. At the heart of trading risk is the question of whether this bounce back is enough for investors to return in May. There are three drivers for further relief in global shares today:

1) U.S. President Trump linked income tax cuts as an offset to tariff pain – also highlighting deregulation and military advancements in the new spending reform bill. The President visits the House Speaker then signs new executive orders today. 

2) U.S. Treasury Secretary Bessent interacted with Chinese officials at the IMF meetings, sees a path towards an agreement, on top of Trump’s previous upbeat views for a deal. Quietly, China has exempted some U.S. goods from its 125% tariffs. 

3) ECB consensus for a June rate cut builds after IMF meetings. The focus on growth, not inflation, is notable but there is no appetite for a big move, despite risks from trade shocks. 

However, there are still significant uncertainties with focus on the voters of Canada electing Prime Minister Carney today, but the size of the majority remains a key question and driver for CAD flows. China didn’t participate in the rally overnight as their plans for further stimulus didn’t match expectations. There is also a heavy slate of global economic data from PMI reports, Q1 GDP, ISM and U.S. jobs reports. The balancing act of the day is in the rebalancing pressures for markets as April market shifts are assessed and investors rethink asset allocations globally. The role for the USD and for U.S. bonds as the safe havens are going to be tested accordingly.   

What You Need to Know

Spanish unemployment ticked higher to 11.36% in Q1, above expectations of a rise to 10.70%. Total employment declined by 92.5k on the quarter, led by a 92.2k decline in public-sector workers, though the bulk of these were employees on temporary contracts. Youth unemployment ticked up again to 26.53%. Overall, the unemployment rate remains at historical lows and the country is still considered a growth leader – but the weakness adds to ECB easing pressures. Spanish retail sales also remained robust at 3.7% y/y. IBEX 35 +0.55% to 13386, EURUSD -0.167% to 1.1346, 10y Bonos +3.7bp to 3.16%.

The Swiss National Bank has once again lowered the threshold factor for the remuneration of sight deposits, from 20 times minimum reserves to 18 times. This is the second such reduction since the minimum reserve requirement was raised. The SNB stressed that the change “counteracts the increase in thresholds due to the raising of the minimum reserve requirement as of July 1, 2024” and did not have any monetary policy intent. We note that a monetary policy impact will be more notable if and when Swiss rates move back into negative, which is gradually becoming the market’s base case, at which point threshold adjustments will have an impact on monetary policy execution. SMI +0.32% to 11980.45, EURCHF -0.1867% to 0.9426, 10y Swiss -0.9bp to 0.403%.

Germany is in the final stages of forming its government. The CDU/CSU Party has named its own cabinet ministers in its coalition with the SPD. Johann Wadephul has been named as the foreign minister and Katherina Reiche as economy/energy minister. Wadephul’s appointment was widely expected. He is seen as more hawkish on Russia and recently warned that many Germans are in “denial” about the dangers of Russian aggression. DAX +0.35% to 22321.25, EURUSD -0.167% to 1.1346, 10y Bund +3.2bp to 2.501%.

China once again denied that high-level talks had taken place with the U.S. Foreign Affairs Spokesperson Guo Jiakun stated that China “is not engaged with trade talks with the U.S.”, though this wasn’t a direct rebuttal to President Trump’s assertion last week that he had spoken to Chinese President Xi. Meanwhile, South Korea’s vice-Industry Minister said there was “no chance” of the country of reaching an agreement on a trade deal with the U.S. before the country’s snap elections on June 3. CSI300 -0.14% to 3781.62, USDCNY -0.16% to 7.2985, 10y CGB -1.2bp to 1.649%.

What We're Watching

U.S. April Dallas Fed Manufacturing Activity expected -14.1 after -16.3 – small recovery but important given other Fed regional survey misses.

Canadian Federal Election: Final polls indicate a 3.6pp lead for the Liberal Party, led by former Bank of Canada and Bank of England Governor Mark Carney. Due to the electoral system, this lead will translate into an absolute majority for the Liberal party of between 15-20 seats.

What iFlow is Showing

Mood: iFlow Mood stabilized with reduced pace of equities selling. Demand for sovereign bonds remains strong. iFlow Carry at a negative and statistically significant zone.

FX: Strong AUD inflows stood out, likely to be driven by unwinding hedges with large Australian government bonds outflows. JPY outflows momentum gains pace, light USD and EUR outflows and inflows in the rest of G10. Flows in LatAm and EMEA were mixed while APAC posted broad inflows except for SGD outflows into General Election on Saturday.

FI: Australian and Chinese government bonds were the most sold against broad buying interest globally. U.S. Treasurys and Eurozone government were bought, including cross-border flows. Faltering demand in Indian government bonds persisted with light outflows in April. There has been a surge in Cash & Short-term instruments (CAST) in Japan and Eurozone.

Equities: Moderate and mixed flows. Swedish equities posted the longest selling streak of nine weeks while light demand for U.S., European and U.K. equities.

Quotes of the Day

“If something is not good enough, stop doing it.” – Jonathan Ive

“It is not good enough for things to be planned – they still have to be done; for the intention to become a reality, energy has to be launched into operation.” – Walt Kelly

Economic Details

China March industrial profit at 0.8% ytd y/y, back to positive territory for the first time since August 2024, reversing from the –3.3% loss in 2024. Operating income rose 3.4% ytd y/y, from 2.1% in December 2024. Looking into the breakdown, the manufacturing industry, which accounts for over 70% of total industrial profit, is up 7.6% ytd y/y, production and supply of electricity, heat, gas and water industry’s profit is up 5.4% ytd y/y while the mining industry’s profit is down 25.5% ytd y/y. CSI300 -0.14% to 3781.62, USDCNY -0.16% to 7.2985, 10y CGB -1.2bp to 1.649%

Norwegian unemployment was unchanged at 4.1% as the labor force survey indicated a slight change throughout the first quarter. The employment rate dipped again to 69.5%, but overall this represents a truly minor change over the past two years as the economy is robust, despite pressures on the offshore economy due to weaker energy prices. Average remuneration in cash terms recovered by 0.8% between February and March, more than reversing the decline between January and February. OSE Index +0.478% to 1463.39, EURNOK +0.303% to 11.827, 10y NGB +3.3bp to 3.933%

 Singapore March unemployment increased to 2.1%, matching the highest print in three years but the country continues to have one of the tightest labor markets globally. The Singapore Ministry of Manpower, however, was cautious on the labor market outlook. It noted that “the moderation of employment growth in Q1 2025, particularly in some outward-oriented sectors, alongside a slight uptick in unemployment, mirrors the deterioration in Singapore’s economic outlook.” STI Index -0.445% to 3806.77, USDSGD +0.0% to 1.3148, 10y SGB -3.65bp to 2.499%.

Hong Kong March exports rose sharply by 18.5% y/y, but imports also increased sharply by 16.6% y/y, leading to a sharp widening in the trade deficit to HKD -45.4bn. The HK Government highlighted that “exports to the Mainland grew strongly, while those to other major Asian economies showed mixed performance. Exports to the United States increased visibly, and those to the European Union registered a marginal increase.” However, global trade tensions will “pose challenges to Hong Kong’s merchandise trade performance,” and we believe data across APAC will prove erratic in the meantime. HIS -0.039% to 21971.96, USDHKD -0.003% to 7.7574, 10y HKGB -1.2bp to 1.417%